One of the great mysteries to many inside the auto industry is why is GM’s stock price so low? Though the company had a weak third quarter, its stock price has been stuck well below its IPO price for much of the last year, despite a return to profitability. Though GM faces challenges, few inside the auto industry understand why its stock price remains so low. One theory: the government’s mere continued presence as a major stockholder creates uncertainty around the company. If this is the case, it creates something of a vicious cycle: the lower the stock price, the less likely the government is to sell its shares, leaving it lingering with no exit strategy, in turn driving the stock lower. Though that’s not likely to be the whole story, one thing is certain: the government has been forced to increase its loss estimate for the GM bailout. The Detroit News reports that the Treasury’s losses on GM are now estimated at $23.6b, up from $14.4b. And with an election looming, it seems likely that the White House will sell within the next six months. But will the government’s desire to protect itself politically trade off with GM’s PR? After all, whatever the Treasury’s final loss is, that number will be pinned to GM as a symbol of what it owes the American people. On the other hand, with most analysts insisting that GM stock is undervalued, another year of government ownership could convince investors to bid up the price, greatly reducing GM’s public debt. Too bad electoral politics will probably prevent that from happening….

Yeah, but $23.6B is but a drop in the bucket of $787B of stimulus money that was ultimately wasted and lost. It only goes to show that when government picks winners and losers, we all lose. Solyndra anyone?

In retrospect, we’ve gained nothing, but lost a great deal more than if government had left well-enough alone and given GM to China, like it gave Chrysler to Italy.

All that was done was delay the inevitable by a few years. But at what cost!? Fifteen Trillion in debt and still counting!

“You can buy a lot for a million. You can buy ten times that amount for one hundred million.”

I get your sentiment, but your math is off.

I think investors are keenly aware that the government is eventually going to have to unload its shares and are rightly avoiding buying. Would anyone buy anything knowing its largest holder has committed to selling its entire position?

It’s not rocket surgery. Everyone knows that the government will dump its share some time between now and the election. When this happens, it will drive down the price, obviously: that’s what happens in any large sell-off.

So why buy now?

The stock price will remain “weird” as long as there is an actor in the market that is (or at least widely appears to be) not interested in the usual “buy low sell high”. So, either 1) the Treasury dumps the stock, and then it can start to rise and fall according to GM’s actual growth (after, of course, the government takes a big loss), or 2) the Treasury holds onto it through the election cycle, convincing other investors that it’s not going to just dump the thing based on a political timetable.

Despite their global presence, both Ford and GM are heavily weighted toward US sales results. As noted, US sales are largely a function of the economic cycle. Investors are nervous about a double-dip or slow growth economy, so they discount stocks like these accordingly.

One theory: the government’s mere continued presence as a major stockholder creates uncertainty around the company.

That’s a bad theory. That’s FUD, not good business analysis.

I’d spend more time worrying about the Silverado keeping apace with the F-150, or the ability of the Malibu to take on the Accord and Camry. I’d then layer those concerns over forecasts for the American economy and oil prices.

The political risk to holding onto the stock is that Obama will be portrayed as a someone who intends to maintain a government presence in US industry. Eliminating that political attack might be worth more to Obama the politician than minimizing the loss is to Obama the president.

The political risk to holding onto the stock is that Obama will be portrayed as a someone who intends to maintain a government presence in US industry

Maybe because I’m not American and can’t appreciate this, but is this really a bad thing for that many swing voters? Do enough people really care whether or not an industry is dependent on the government (and subject to under-the-table shenanigans) versus being outright, explicitly nationalized?

Let’s face it — the majority of those who are inflamed about the bailout and who are eager to fault the current administration for its perceived ills weren’t going to vote for Obama, anyway. The president has nothing to gain in trying to please them; even if the bailout had turned a profit, the hardcore right would still complain about it.

The other risk is to sell it now and take the loss going into the elections. Considering critics will complain no matter what’s done factor politics out and ask which is better for the our chances of recouping more money? That should be the question unless there are political motivations at work arguing for the most disastrous choice.

“Eliminating that political attack might be worth more to Obama the politician than minimizing the loss is to Obama the president”

This is what pisses me off about all these clowns, Dems and Republicans. They don’t care about doing the right thing for the country, just what will get them another term and more re-election fund donations. Then we have the blind sheep that defend their favorite party while both parties are screwing us all.

I don’t know who is worst, the politicians that are screwing us or the blind sheep that buy the crap their favorite party is shoveling.

I’m not a big Obama fan but IMHO he did what had to be done. No one can tell me a Republican president would have not done the same thing.

“even if the bailout had turned a profit, the hardcore right would still complain about it.”

That is a false test which assumes that the worthiness of govt intervention depends solely on where the bailed-out firm makes a profit.

If the govt heavily subsidized just one NFL team, would you judge the intervention a success if that team then had a winning record?

But as wsn said, by your measure the govt failed unless you want to extend the measurement period out way out into the future if and when GM pays back all the money and in-kind help (like tax carry-forward from Old GM) it got from govt.

That is a false test which assumes that the worthiness of govt intervention depends solely on where the bailed-out firm makes a profit.

You’ve done a wonderful job of misinterpreting the point.

Let me spell it out for you — you would be upset with Obama, no matter what. You’re eager to blame him for whatever outcome. Had he not bailed out GM and we had sustained the consequences of that inaction, you have blamed him for that, too.

Ideologues such as yourself will always be discontent with those who perceive as being your enemies. For someone like you, Obama’s positions are basically irrelevant. Regardless of what he says or does, you’re going to complain about it. And because of that, he would be wise to ignore you, since you’re going to look for excuses to gripe.

I was not thrilled to bail out GM, but the consequences of allowing them to fail at that point in time would have been a catastrophe. The only thing that would have cost more than bailing them out would have been to have not bailed them out. Sometimes you just have to act like a grownup, accept that none of the alternatives are pleasant, and pick the one that hurts the least.

Without a bailout, responsible firms devour irresponsible ones. So next time around, everyone will be more responsible.

With a bailout, everyone will realize that it’s your lobbying power that counts (to receive a bailout), so next time around you will want to be irresponsible for the potential growth, and just lobby/corrupt politicians for the possible decline.

Pch, maybe someday your ilk will realize it isn’t always possible to rationalize, intellectualize, and spend, spend, SPEND! your way out of a crisis. There will always come a point at which you need to bring about pain, or have pain brought upon you, in order to learn anything.

GM still lives today, and it’s still hemorrhaging money — OUR money. Instead of gutting this bloated, dying pig years ago, it continues to feed while still bleeding out. We haven’t learned anything.

Rob Finfrock, right you are! And fortunately for us, all things, good and bad, will come to an end. In the case of GM, just not soon enough. The bail out was wrong when Bush did it, but it was even worse when Obama decided to so lavishly help his UAW buddies and bestow taxpayer money on this lost cause.

This could have all been over and done with, like in the case of Chrysler at a cost of the initial bail out expenses plus $1.3B in bribes to Fiat to take Chrysler off our hands. We could have done the same with GM by giving it to China.

In the case of GM we’re still stuck with this loser now referred to as Government Motors or Obama Motors. It ain’t gonna get any better any time soon, no matter how anyone tries to spin it.

Now this is an interesting thread I agree totally with with almost 100% of PCH101’s replys. While Highdesertcat seems to have been hacked by JJJwhatever.

GM does/did not exist in a vacuum. They are/were a significant part of our economy and were linked directly or indirectly to many other companies and their success. Of course there is no way to tell exactly how it would have rippled through the economy. Suppliers would have been affected which could put them in bankruptcy too. Those suppliers closing would affect other mfgs. So what would have the total for all those people who went on unemployment and welfare? How about all those taxes that the closed business and their employees wouldn’t have paid? How much further would home prices be depressed due to even more foreclosures caused by those unemployed?

It was a hard choice between the lesser of 2 evils.

A number of things did actually change at GM. First and foremost the huge drain of cash that was Saturn was finally euthanized. Saab was also a drain and Hummer wasn’t going to be anything but a drain in a post SUV and conspicuous consumption era. That should allow them to realize a better return on their R&D, and marketing dollars. The loss of those brands and some of the “benefits” they received in bankruptcy should reduce overhead and other costs as well.

Despite what many around here say GM’s problem has never been it’s ability to sell cars or a shortage of people actually wanting to buy them. The problem was that they no longer made a profit on those cars they sold. Some of that was due to their costs being too high, a number of those reasons were eliminated as stated above. The other problem was of course the incentive levels near the end. The reasons those incentive had got soooo high was certainly GM’s own fault but a lot of it was due to external factors. The post Dot-com stock market is full of irrational investors. Instead of stocks trading on the fundamentals of PE ratios, book value, and things like you know actual profits and profitability, they often trade on rumors, press releases, market share, or sales increases. The later two often which could be due to reduced profit margins.

So when GM stepped up to the plate post 9/11 and jump started the economy that was sitting dead in the middle of the road when they offered their first 0% financing incentives they set the wheels in motion. For the most part those early deals served only to pull demand forward. So as soon as the offer ended sales ground to a halt. That meant to pull demand from farther out they had to up the incentives. That resulted in higher sales numbers and that makes Wall street happy. However the inevitable sales slump that would follow doesn’t make them happy. Since executives compensation is often tied to the stock price. Next thing you know and they are selling cars at cost and carrying the note for 6 years at 0% in an attempt to keep showing those year over year sales increases.

Unfortunately GM is now back in the shark waters that goes with being publicly held. Despite all that has happened in the past few years the stock market is still pretty heavily influenced by irrational investors. On the plus side the sales numbers have been reset so there is a new reference point to base sales results against.

GM’s problem has never been it’s ability to sell cars or a shortage of people actually wanting to buy them.

Of course it was. By 2008, GM’s market share had plummeted from what it had been at its peak decades earlier. Aside from trucks, they dominated no major vehicle classes. Their vehicles were out of touch with the market to such an extent that they had no choice but to discount them to an operating loss, in spite of having lower operating expenses than Toyota.

No, GM deserved to fail. Badly managed companies that are out of touch with consumers earn their failure.

Unfortunately, the timing was such that we couldn’t afford to let them fail. If this had happened in 2004-5, instead of during 2008-9, then it would have been a very different story. But it didn’t, so it wasn’t.

Certainly GM’s market share had fallen from decades earlier when there wasn’t much competition. The problem was that after they prevented a recession that 9/11 would have caused they were stuck between a rock and a hard place. Stop pulling demand forward and putting people that would have bought the 1-2 year old car in a new car and they would show a year over year sales loss. That would have affected the stock price and thus many executives compensation. So the discounts got higher and higher and eliminated the profits. Had they not started and kept increasing the discounting they likely would have made a profit.

I’m not saying that there aren’t/weren’t other problems in GM just that chasing sales increases and market share (w/o regard to the bottom line which the stock traders apparently didn’t care about) was a major factor that put them in the position they were in.

I agree that GM “deserved” to fail and had it happened at an earlier point in time letting them fail would have been the right thing to do, but occurring when it did, bailing them out was by far the lesser of two evils.

Scoutdude, it is entirely plausible for someone to believe that GM should not have been rescued by the tax payers, while at the same time hoping that GM does well now that the tax payers are stuck with it. That’s not contrary.

GM failed. It should have been liquidated in spite of all the reasons you mentioned because of indefinite and continuing financial assistance, tax accommodations and accounting privileges at tax payer expense. It would have cost less than the $787Billion stimulus package that failed.

But we are stuck with this loser, some say forever because of the exact same arguments and reasons you presented for bailing out GM in the first place. So it is not surprising that since we are stuck with this loser we should hope that GM does well and maybe makes enough money to pay the tax payers back for all their generosity.

Ultimately the buyers will decide by voting with their wallets and their feet. We saw this over decades past as GM’s sales declined when former GM owners jumped ship. If the buyers believe that bailing out GM and the UAW was a good thing, they should buy GM products. If not, they should buy something else.

FYI, I’m not just BS-ing. I actually put my money where my mouth is. To wit: I bought my wife a 2012 Jeep Grand Cherokee Overland Summit V6 4X4 with leather, sunroof and all the toys, this past Tuesday.

I would not buy a Fiatsler product for myself, but if my wife loves the styling and the White Gold Clearcoat color, it’s cool with me. Yes, I paid too much for it but it is not often that you find a vehicle that is just a perfect match for my wife’s wants and needs.

The Jeep dealer begged, BEGGED!, us to trade her 2008 Highlander Limited AWD, even with over 60K miles on the odo. But I declined, deciding to keep it for myself for when I don’t need to drive my Tundra.

If more people will go against their beliefs like I did, then GM sales should sky rocket and GM’s stock should easily rise past their IPO level. But I don’t think that is ever going to happen.

Highdesetcat, certainly it isn’t contrary to have been against the bail out but to still wish that GM does well enough so that the losses to wee the people are minimized. Though the “norm” around here is that many people want GM to fail again and cost us even more money by the value of the gov’t holdings being reduced to zero. Your recent postings have made you sound more like the later rather than earlier postings where it sounded like you really were rooting for GM to succeed.

I’m not sure why buying a Fiatsyler is putting your money where your mouth is regarding wishing for GM to succeed.

Personally I don’t think paying someone to take GM as was done with Chrysler would have resulted in less cost to the US taxpayer in either the short or long term. Liquidation at the time would also have cost the taxpayers more in both the short and long term IMO than what was done.

Facts are GM is in a better state than they were before. Are they “fixed”? Certainly not. Are they doomed to fail again in the short term? I don’t think so. I’m not saying that they are guaranteed to succeed, just that current indicators do not lead me to believe that failure is assured.

Personally some recent offerings are the first that I’d consider from GM when I look to buy a new car for the wife.

Scoutdude, since I did not agree with the bail outs of GM and Chrysler, I put my money where my mouth is about wishing that BOTH GM AND Chrysler do well, each for different reasons: GM to repay the US tax payers which includes the taxes my wife’s company paid, and Fiatsler to make sure that someone will honor the warranty on my wife’s Jeep Grand Cherokee when she needs to have it fixed under warranty during the next 5 years or 100,000 miles, whichever comes first.

GM is guaranteed to at the very least remain alive because precedent has been set by Obama for bail outs of failed companies AND investment in doomed enterprises, like Solyndra.

The US government has no choice but to continue to support GM from now on, and mitigate the losses derived from Solyndra et al, because to do otherwise would be a public admission that this administration doesn’t know beans about business or investing in businesses.

What Bush did was wrong, bailing out failed corporations, but the reason given was that it would give the incoming Obama administration time to develop a strategy of how to deal with a failed US auto industry. The core of the problem was, of course, the policies of the Congress re home ownership, economic policy, unsecured mortgage loans at Fannie and Freddie, CRA, and financial instruments that bundled much of these instruments together and sold them as ‘investments’ all over the globe.

One thing led to another and the rest is history. We’ll never recoup the losses of money wasted on GM and Chrysler but we CAN hope that they do well.

Had the bail outs not happened and failed companies were left to die and liquidate, I believe we would have been no worse off than we are today. But we’ll never know because the bail outs did happen and we are still in a mess today and tons of money was lost on hopeless gestures to keep the UAW working and living large.

Giving GM to China would also have kept the UAW working, just like giving Chrysler to Italy kept the UAW working. I would not have bought anything from either GM or Chrysler but I had to relent after my wife picked a vehicle she really, really liked. It goes back to that old saying “If mama ain’t happy…”

It comes as no surprise to me that GM’s stock is in the tank. Hey, I used to own GM common stock until my broker advised me to sell all of it in 2007. Glad I did! My bet is that it will sink even lower until GM divests itself of Buick and GMC and starts to focus on Chevrolet and Cadillac as its core business.

Investing in the stock market entails risk. If any entity, Uncle Sam included, lacks the patience or means to hold a company through economic dips, they shouldn’t be in the game. If I’m not allowed to throw a fit about “exit strategy” when my own retirement fund and portfolio (and my home!) slide in value, why should anyone else? Maybe the naysayers should help foster the economic climate that lets this investment in GM appreciate.

I own some shares of GM, and will continue to do so. GM is a massive international company that recently restructured and holds a decent portfolio of talent and product. The rising tide of recovery will lift this boat, as well. I wish it would happen soon, but it’s not…and that’s not all GM’s fault.

“One of the great mysteries to many inside the auto industry is why is GM’s stock price so low? ”

Maybe because it really doesn’t worth much? Sure, it did have a couple good quarters after a multi-billion cash injection. But is the management improved from the old GM? Is the cost structure (i.e. UAW) any different? If not, then why would it’s future be any different from the old GM?

My view is as a tax payer I’m still money ahead having bailed out GM and Chrysler. Might as well include Ford as they would have tumbled shortly after. As a homeowner, I’m a lot more concerned about the 200K+ that vaporized on the home we purchased in 2003. A few of my tax dollars being spent on the auto industry, not soo much. And I mention that becasue it’s all tied together. Luckily unlike most, we still have positve equity on our home versus most that are upside down on theirs.

Stock is low because stockholders are selling. Inside info. and pass it on. We repeat customers(45 years)GM is loosing. Case in point. I bought a new 09 chev. found out it was wrecked and repainted at factory. After 3 months of phone calls and faxes to customer service, including finally,up to CEO and VPs, I received my answer: “We (GM), BY LAW, do not have to tell you about hidden(undisclosed) damage and repaints. District mgr. denied repair/repaint although four pros in paint and body and two dealers agree it was damaged and not disclosed. Top mgt. stands by the dishonest “look”, not inspection of the new car (still under bumper to bumper warranty), that there is nothing wrong with the car. GM knows I am going oline and seeking a lawyer. GM’s insurance co. will be out the money not GM. SELL your stock and then pass on this info. FRAUD? Collusion? Cupable? or u decide “there ought to be a law.” product laibility laws require refunds/repurchase, replacement, or financial settlement. why not auto manufactirers?

The culture of GM has appeared to have had nearly imperceptible change, if any, from the prior regime.

Interestingly, they are behaving much like the other group of companies that received bailouts. B of A attempting to bump Debit card fees to $5/month to offset revenue they were squeezing from their customers sounds awfully similar to how GM has treated many of its customers both pre and post “bankruptcy” for warranty service or general treatment at the dealer level. It took an absolute shitstorm of negative press for them to relent.

This is what happens to the “Too big to fail” companies. They are now trained to behave like spoiled heirs or welfare queens, thinking their next payday is around the corner regardless if they hit the jackpot or screw the pooch.

To those that supported the bailout, you seemed to have ignored the law of unintended consequences. Or maybe you didn’t ignore them, but chose to minimize them as you felt we had no other choice.

a Chapter 11 bankruptcy was not possible, as little funding was available from the private markets for DIP financing.

The GM and Chrysler bankruptcies were under Chapter 11.

But the intention of your comment is correct. As of 2009, there was no money in the private sector to fund their DIP financing. Government wasn’t just the lender of last resort, it was the lender of only resort.

Here are some posts on GMInsideNews.com on a thread dealing with GM’s stock price, which I find interesting, and perhaps posters with a more solid background in finance can judge their validity. For the record, these posters do not have an axe to grind with the bailout itself:

Keep an eye on GM’s inventory. DOS levels went into the low 80’s in October, a significant increase from the high 60’s. If GM continues to overbuild, they will be compounding their problems going forward. They already have problems with truck inventories, so if this problem becomes more systemic, not good.

GM also must deal with its unfunded pension liability, which gives it almost as much debt as Ford. This goes underreported, but will be a significant drag on cash balances.

Europe is an open sore for GM, despite Akerson’s pronouncements earlier this year. They might be headed into some rough waters as they take needed steps to reduce the bleeding of that division.

And this:

Hold on, with a scholastic background in finance you should see one other problem that this old economics/business guy can see. ROI is off the curve here as well. GM is a couple of points behind Ford and VW in terms of earnings, and that in spite of the fact that GM hasn’t been servicing any significant debt load. A lot of this is due to management/structural issues, but specifically as it relates to this problem I wouldn’t call that an unknown right now since we know, to a lage degree, what is causing this. Until GM actually does address this, assuming that they address this at all, it will remain a sticking point for investors. Particularly so since, if they don’t address this, as VW grows and Ford finishes paying off their debt they will fall even further behind in this regard. (emphasis added)

And this:

But he is right with regard to something that I already touched upon above. GM very obviously has too many brands going forward, at least they do as it relates to their ability to manage that many brands. Given the right management team and corporate structure that lineup might work out just fine, but as of right now GM is not demonstrating an ability to handle all four in a manner that is beneficial to the company. (emphasis added)

And this:

GM is absolutely larger, and that provides them with several inherent advantages all else being equal. That said, huge operations and revenue won’t be enough long term and at some point they have to get competitive when it comes to profit/earnings. They have the tools to get that done, I think the question here is whether Ackerson is up to the task.

Ironically for a car company, the cars aren’t the problem here as the product looks great overall, which you already know. The problem is management and corporate structure, (and citing corporate structure issues is really just another way of saying that management is broken) something which several of us have been stating for some time but which this particular issues really brings to light, and to fix it GM has to get the RenCen in order.

If we start seeing press releases talking about lowering supplier costs, etc. as many fear, all while avoiding the issue mentioned above, we’ll know Ackerson isn’t the CEO that GM needs for him to be. GM and Ford should easily be two of the three strongest automotive companies in the world right now, I would hate to see something as mundane as this prevent that from coming to pass.

Maybe these people are wrong, but they seem to be pointing out serious internal issues that GM must address, and they aren’t just saying, “The bailout was bad, everyone knows this, so investors won’t buy Government Motors stock, as it’s now a socialistic entity.”

I’ve traded stocks. If there’s anything to be learned from it, it’s that anyone who makes buy and sell decisions based upon some sort of convoluted political angle is a fool.

Smart investors all belong to the Green Party…as in the color of money. This politics nonsense, if taken seriously, can cost real money, so they should be left at the door.

I go back to my earlier point — car companies are highly cyclical, and Ford and GM both are heavily weighted toward US sales, which gives them both the benefit and the downsides of exposure to the US economy.

Stock investors (as opposed to traders) are buying expected future earnings. Another recession would be bad for both Ford and GM. A smart investor would hedge for that possibility by punishing the stock price.

It’s also worth noting that the auto industry is mature, so growth prospects are modest, even during good times. Aggressive money is not typically going to gravitate toward auto stocks, regardless.

Good US GDP and unemployment numbers would help both of these companies. So would lower oil prices, as both are highly dependent upon truck sales for their US revenues. While the inventory and balance sheet issues are worthy of attention, the short-run price movements are probably more revenue-driven, in my opinion.